Introduction to Financial Accounting and Financial Statements

Vocabulary practice flashcards covering fundamental financial statements, reporting periods, accounting principles, and the accounting equation based on the lecture notes.

Fiscal Year

An annual accounting period of 365 days used by a business to report its financial position and progress, which does not necessarily coincide with the calendar year.

Interim Reporting Periods

Accounting reporting periods within a fiscal year, most commonly prepared on a monthly or quarterly basis.

Income Statement

A financial statement covering a period of time that reports an organization's revenues, expenses incurred in earning those revenues, and the resulting net income, net loss, or break-even point.

Three-Line Heading

The standard format appearing at the top of every financial statement, consisting of: 1. Full business name, 2. Type of statement, and 3. Date or period of time.

Statement of Changes in Equity

A financial statement covering a period of time that reports changes in an owner's equity or capital, tracking increases from owner investments and net income, as well as decreases from owner withdrawals and net losses.

Equity

A measure of the value the owner holds in the business, which is equal to total assets minus total liabilities and represents owner financing.

Balance Sheet

A financial statement that reports the assets, liabilities, and owner's equity of an organization at a specific point in time.

Assets

Properties or economic resources owned by a business describing what the organization has invested in, typically listed on the balance sheet in order of liquidity.

Liabilities

Debts or obligations of a business that describe non-owner financing (borrowing) owed to external parties.

Debtors

People or parties who owe money to the business.

Creditors

People or entities to whom the business owes money.

Statement of Cash Flows

A financial statement that tracks and reports the sources and uses of cash over a period of time, categorized into operating, investing, and financing activities.

Operating Activities

A section of the Statement of Cash Flows that reports cash inflows and outflows resulting from a company's primary business operations.

Investing Activities

A section of the Statement of Cash Flows that tracks cash inflows and outflows resulting from investments.

Financing Activities

A section of the Statement of Cash Flows that reports cash inflows and outflows not related to primary operations or investments, typically involving the owner adding or withdrawing cash.

International Financial Reporting Standards (IFRS)

The global accounting standards adopted to replace Canadian GAAP, intended to establish a unified set of international rules to improve financial comparability.

Business Entity Principle

The accounting principle requiring every business to be accounted for separately from its owner(s) or any other economic entity, prohibiting personal assets and liabilities from appearing on the business balance sheet.

Cost Principle

The accounting principle stating that all transactions must be recorded based on the actual cash amount received or paid, or the cash equivalent amount of the exchange at the time it occurred.

Going Concern Principle

The accounting assumption that a business will continue operating indefinitely into the future rather than being closed down or liquidated, unless evidence indicates otherwise.

Monetary Unit Principle

The accounting principle requiring transactions to be expressed using a common denominator of money, assuming the currency unit is stable and without adjustments for exchange rates or inflation.

Revenue Recognition Principle

The accounting principle requiring revenue to be recorded at the exact time it is earned, regardless of whether cash has actually been received.

The Accounting Equation

The foundational accounting relationship expressed as $\text{Assets} = \text{Liabilities} + \text{Equity}$, which tracks changes in an organization's resources, non-owner financing, and owner financing.

Transaction Analysis

The three-step process of determining: 1. If a business transaction occurred, 2. Which accounts are affected (minimum of two), and 3. Whether those accounts increase or decrease while maintaining balance in the accounting equation.